Mark Carney (Governor of the BoE) and Andrew Bailey (Head of the Prudential Regulatory Authority within the BoE) were sharply critical of recent warnings by the BIS that central banks were fueling another crisis by keeping rates too low. Carney said: “It’s a report that’s made in a vacuum though, the vacuum of Basel, a world where a central bank doesn’t have a mandate… a world where a central bank is not accountable to Parliament and through Parliament to the people, to achieve specific targets.” Bailey: “It’s an interesting commentary from an institution that doesn’t have policy obligations.”
As I wrote in earlier posts, I agree with the substance of these Bank of England remarks, that tightening policy now would be ill-advised. But, two concerns.
First, these remarks come close to reading like this: ‘the BIS see clearly what would be in society’s best interests in the long run, but unfortunately we have these local political masters who have set us inflation targets that we need to hit, and doing that means we can’t do what’s right. What a pity we can’t do the right thing.’
Second, there is an element of this: ‘you shouldn’t take seriously their views, because their minds are not concentrated by the reality of having a real job to do.’
I doubt anyone at the BoE holds the first view, but it’s a dangerous one to allow to be read into your utterances.
The second I think was intentional and misjudged. It could be read as an attempt to devalue all independent commentary. Not a policymaker? No right to comment, since you are other-wordly. Presumably academics, journalists, employees of the IMF would fall into the same bracket. In fact, who would be qualified, outside the BoE itself? An organisation like the BoE, with so many important powers, and with such imperfect systems holding to account, is in a delicate situation. It must be seen to welcome scrutiny and challenge, however daft. The more defensive and undermining it is of its critics, the more likely it runs the risk of corroding the political consensus around its independence.
Besides, the BoE is part owner of the BIS. Collectively, central banks [ultimately through their governments] have agreed to tolerate a role for the BIS as an independent commentator on central bank policies. There are good reasons to do it. One might hope that if there were market failures in monetary or financial economic research, the BIS could act as a focal point for thinking and funding. The BIS’s independent commentary could potentially be a force for good in orchestrating better global coordination for monetary policy, and averting self-defeating competition between countries over financial regulation. This independent commentary, even if sometimes unsound or unwelcome, may, in the long term, bolster the independence of member institutions. Local political regimes may be just a tiny bit less tempted to interfere if there appears to be an expert functioning community, of which the BIS is a part, evaluating what their central banks are doing.
If Carney and Bailey don’t want independent commentary, they should work behind the scenes to get an agreed change to the BIS’ mandate with other owners. If that’s not an option, they should simply combat arguments they don’t like with economics, and not resort to near-smear-tactics.